Picking errors have a very high cost to your ecommerce business in both actual costs and in lower customer satisfaction, lifetime value (CLV) and retention. These problems will erode your business’ profitability and adversely affect the customer experience.
A mis-pick or ecommerce picking error can occur for a variety of reasons:
- Picking a wrong item, in addition to, or instead of the correct item
- Wrong quantity
- Failure to pick an item
- Picking an item that is unacceptable because of damage, incorrect labeling, or packaging
We will help you identify the cost to your business and the customer experience, and share 6 ways to minimize ecommerce picking errors.
Identifying the Cost of Mis-Picks to Your Business
Mis-picks most often end up as returns, processing returns cost more than the cost associated with order fulfillment. Here is a list of typical costs:
- Resolving a mis-picked order often starts with a customer service call or chat (2-3 minutes) to return the product and make a complaint.
- Returns processing labor to receive, process and make the item available for resale or disposal.
- Refunding a customer’s return shipping cost.
- Potential rework and repackaging if the packaging is damaged.
- The cost of picking and shipping the replacement item.
- Labor cost to do a cycle count, if a mis-pick results from a stocking error.
- Loss of gross margin if the customer cancels.
Identifying and measuring these costs, we find actual costs can be $50 to $75 per mis-pick when all costs are taken into account. Typically, costs include new customer acquisition, ecommerce fulfillment and shipping. However, the highest cost occurs if it leads to loss of a customer and their LTV. Depending on the business, LTV can be in the hundreds of dollars to thousands of dollars per customer.
Compounding this, in many ecommerce and DTC businesses a high percentage of customers shop once and never again. If operations give them solid reasons to not shop because of ecommerce picking errors, this contributes to lost profitability.
What’s An Acceptable Error Rate for Your Business?
In fulfillment operations that are not fully utilizing barcodes, 1% to 2% error rates or more can typically be expected in ecommerce picking. Full implementation of barcodes throughout receiving, put away, picking, pack confirmation, shipping, returns and cycle counting increases the accuracy rate up to 99.99%.
While a 1% error rate sounds small, the costs to your business can be sizable. Let’s say you ship 1,500 orders per day, 260 business days per year. If you count just the operations costs at $50 per error, that’s $195,000 annually.
We’re not going to estimate LTV because it varies by business. It would need to be objectively measured by marketing in a controlled test. In any case, what is an acceptable error rate for your business?
6 Ways to Reduce Picking Errors
Track mis-picks and costs
Among all the fulfillment center metrics you can collect and report, mis-picks, the reasons and sources/causes of the errors and costs should be right at the top of your list. Make this a part of your operations strategy.
What causes the majority of the errors? Are there flawed processes which allow errors to occur? Are there some errors occurring in the receiving or the vendor environment that introduces errors into the FC? Are there issues with certain pickers causing a higher percent of the problems? Review your picking process and identify why they occur.
Full implementation of barcodes and scanning processes
Full use of barcodes and scanning throughout all fulfillment center processes. In particular, barcode picking technology and pack confirmation scanning can reduce pick errors. Barcode labeling and scanning is the pre-requisite for all the more advanced technologies.
Reduce fatigue with improved slotting
We all know that pickers spend 70% of their time walking between pick locations. This can cause fatigue which can result in mis-picks. Here are some ways to improve slotting.
Invest in automation where return on investment is possiblepick to light
These are advanced systems that can have a favorable ROI:
- Voice picking
- Pick to light and put to light
- Automated picking modules for higher-volume operations
- Goods-to-person picking and conveyance system
Ways to improve a manual picking environment
Many small-to-medium ecommerce businesses cannot cost justify automation. Here are some proven best practices:
- Implement visual checking in packing process
- Be sure that the pick document font size is large enough to be easily read
- Is your pick area illumination strong enough? Often secondary pick areas are not as bright
- Emphasize picking from the location on the pick document, not from memory or where the picker thinks the item is located (“It was here yesterday”)
- Don’t locate same color or sized SKUs next to each other if mis-picks occur frequently
Adopt a count schedule based on item sales velocity
The fastest-selling product is picked more often. Remember Pareto’s law will be at work: 20%-30% of the SKUs will give you 80% or more of the selling velocity. Count them frequently to be sure they’re available. The slowest-moving SKUs may be counted only monthly or even less often.
Reducing picking errors with these methods and investments will radically decrease errors and costs and improve the customer experience. WERC’s annual report says picking errors are the single most important metric in managers’ reports at fulfillment and distribution centers.
Brian Barry is president of F. Curtis Barry & Company